It's confirmed: Wearables are the 'next big thing'

Wearables will become the world's best-selling consumer electronics product after smartphones, according to new forecasts by market research firm Euromonitor.

Sales of autonomous wearables, or smart wearables, are projected to exceed 305 million units in 2020, with a compound annual growth rate (CAGR) of 55 percent during the next five years, Euromonitor said in a new report.

That's well above other electronics like laptops and televisions but still below smartphones, which will maintain their dominance in the consumer market with sales projected to top 1.6 billion units in 2020, Euromonitor noted.

Two main categories make up the wearables market: Autonomous wearables, which include smartwatches and the Google Glass, and passive wearables, also known as basic wearables.

The former group boasts built-in connectivity features and advanced processing capabilities that are capable of running third-party applications while the latter has a smaller range of functions. The majority of passive products today are fitness trackers like Fitbits that can only provide biometric data about users.

Improvements in technology and battery life as well the entry of the Apple Watch are among the top growth drivers for wearables, Karissa Chua, Euromonitor's consumer electronics analyst told CNBC.

"Apple is such a strong brand and known for their quality so it has become a major catalyst for the entire market."

Moreover, the consistent growth rate of smartphones actually pushes up demand for wearables, she explained. "Demand is closely tied to smartphones as people essentially buy wearable products for an extension of the smartphone experience."

The ascendency of wearable electronics also provides a much-needed boost to retailers and manufacturers as the dynamic growth of tablet sales comes to a grinding halt , Euromonitor added.

Emerging markets are unlikely to experience high demand for wearables since internet penetration rates aren't as high and people in those countries are still making the transition to smartphones, Chua noted.

To be sure, Euromonitor's forecasts are noticeably more bullish than other intelligence gathering firms like International Data Corporation (IDC). In a report last week, IDC bet global shipments will hit 173.4 million units by 2019, significantly below Euromonitor's prediction of 305 million units in 2020

But IDC also warned of the growing gap between autonomous and passive units.

While smart wearables only account for about a third of the total market today, they are on track to surpass the less functional basic wearable category by 2018 thanks to advancements in user interface and features, explained Jitesh Ubrani, IDC's senior research analyst.

"Smart wearables will quickly move from a smartphone accessory primarily focused on notifications to a more advanced wearable computer capable of doing more processing on its own."